Manitoba – Broad arbitration clause in one agreement required stay of action based on related employment contract – #535

Relying on the growing body of arbitration-friendly jurisprudence from the Supreme Court of Canada and provincial appellate courts, the Manitoba Queens Bench in Wardrop v. Ericsson Canada Inc., 2021 MBQB 183 re-affirmed the importance of the court’s adherence to the stay provisions in s. 7 of The Arbitration Act, C.C.S.M. c. A120 (the “Act”).  Justice Rempel held that an action for wrongful dismissal must be stayed. The key issue concerned the plaintiff employee’s entitlement in the severance period to bonuses made available pursuant to an agreement which contained a broad clause in favour of arbitration. That agreement was separate from the written employment agreement which the plaintiff employee alleged was breached and which did not contain an arbitration clause.  However, the damages sought by the plaintiff related to the bonuses. Justice Rempel granted the defendant employer’s motion for a stay in light of the broad arbitration clause in one of the agreements. Further, in finding that there was no basis to refuse the stay under s. 7(2) of the Act, Justice Rempel narrowly interpreted the provision permitting a refusal of the stay where the matter was a proper one for summary judgment.  The plaintiff employee did not satisfy the court that this exception, or any of the other bases for refusing a stay, was applicable.

In April 2019, the defendant employer terminated the employment of the plaintiff. It provided working notice of two months and severance pay in lieu of notice of 78 weeks (the “severance period”).  Throughout the course of his employment and in addition to any remuneration available under his separate written employment contract, the plaintiff participated in a sales incentive plan (the “SIP” or the “Plan”) and earned substantial bonuses. The 2019 SIP Agreement governed the SIP for 2019. Similar agreements for the SIP had existed in previous years. Each of those agreements had been drafted by the employer and sent to the plaintiff for acceptance.

The 2019 SIP Agreement specifically excluded common law entitlements to SIP bonuses when calculating payments in lieu of notice. The defendant employer relied on these provisions of the 2019 SIP Agreement for the position that the bonus payments would not be payable during the severance period.

The 2019 SIP Agreement further contained a fairly broadly-worded provision, directing arbitration of disputes relating to the SIP.

The plaintiff sued for wrongful dismissal, claiming that the employer had breached his employment contract by failing to give reasonable notice or pay in lieu thereof. A key issue in the action was whether the plaintiff was entitled to receive the SIP payments during the severance period.  The plaintiff asserted he was. The court summarized the plaintiff’s position as an argument that:

“[43] the implied common law term that bonus or incentive payments falling due during the period of reasonable notice offered by the (defendant) was not clearly taken away or limited by way of an agreement between the parties”. 

In response, the defendant employer moved for a stay on the action in favour of arbitration, based upon the arbitration clause in the 2019 SIP Agreement.  The plaintiff employee claimed that the arbitration clause in the 2019 SIP Agreement was not part of his contract of employment, which he alleged the employer had breached. Accordingly, the plaintiff argued that this claim ought not be stayed in favour of arbitration, and he should be entitled to make his arguments in the action.

In the alternative, the plaintiff argued that the court should exercise its discretion to refuse the stay on the basis of invalidity (s. 7(2)(b) of the Act), undue delay (s. 7(2)(d)) or that this was a proper case for summary judgment (s.7(2)(e)). On this latter point, the plaintiff argued that s. 7(2)(e) should apply whenever summary judgment is available under the Queen’s Bench Rules. The defendant took the position that this exception must be more narrowly interpreted and that this was not a case suitable for summary judgment.

Justice Rempel rejected the plaintiff’s argument that, as his claim was based on a breach of the employment contract, the arbitration provisions in the 2019 SIP Agreement were not binding on him.  The court noted that the plaintiff admitted that the termination package, as it related to length of notice, was reasonable. The real issue was that the plaintiff had received significant bonus funds under previous SIP agreements and was now arguing for further bonuses under the 2019 SIP Agreement as part of his wrongful dismissal claim. The court noted that the plaintiff could not sue for bonuses under the 2019 SIP Agreement while also arguing that the 2019 SIP Agreement was not part of his employment contract or not binding on him.

In finding that the arbitration clause applied, the court referred to appellate authorities in Manitoba (Hopkins v. Ventura Custom Homes Ltd., 2013 MBCA 67) and Ontario (Ontario Medical Association v. Willis Canada Inc., 2013 ONCA 745) for the general proposition favoring liberal interpretation of arbitration clauses:

[30] The key principle to be extracted from the authorities in Manitoba and Ontario is that unless a legislative exception dictates otherwise, a court should stay a proceeding in favor of arbitration when it can reasonably interpret an arbitration clause in a way that requires arbitration of the dispute at hand.” 

Justice Rempel rejected the argument that a claim based on a breach of an employment contract cannot be stayed based on the arbitration clause contained in another agreement.  Relying on s. 17(3) of the Act (the severability provision), the court noted that, in giving the required broad and liberal interpretation to the clause:

“[49] “the question to be posed…is not whether the arbitration agreement is part of the same contract out of which the dispute arises, but rather whether the arbitration clause “is capable of [a] meaning…[that] provides for arbitration of the disagreement (Hopkins at para 62).”

In this case, provision XI.H. of the 2019 SIP Agreement provided for final and binding arbitration for “any dispute or controversy arising under or concerning this Plan (including the payment and amounts of incentives”.  The court found that, as the action was a dispute over whether SIP payments would have to be paid during the severance period, this was an issue that concerned the SIP.  As such, it fell within the ambit of the arbitration clause.  

Further, applying the principle of competence-competence, the proper place to argue the scope of the arbitration clause was before the arbitrator. The plaintiff employee was directed to challenge the arbitrator’s jurisdiction before the arbitrator. 

Justice Rempel further rejected the plaintiff’s argument that a stay should be refused based upon any of the exceptions under s. 7(2) of the Act.  

With respect to s. 7(2)(e), the court cited the Ontario Court of Appeal’s decision in MDG Kingston Inc. v. MDG Computers Canada Inc., 2008 ONCA 656 in which the analogous provision in the Ontario statute was considered. There, the court found that whether the matter was properly one for summary judgment was whether there were “issues that require the assistance of an arbitrator” (MDG, at para 37). Justice Rempel found that the plaintiff employee did not meet that threshold to establish that this was a proper case for summary judgment.

Importantly, Justice Rempel rejected a broader interpretation of the exception as argued by the plaintiff.  He noted that the provisions in the legislation for refusing a mandatory stay because the matter was proper for summary judgment preceded the Supreme Court of Canada’s decision in Hyrniak v. Mauldin, 2014 SCC 7, which expanded the role for summary judgment.  As such, when the legislature used the words “the matter in dispute is a proper one for default or summary judgment” when drafting s. 7(2)(e), it simply could not have been referring to the broadened application of summary judgment endorsed by the Supreme Court of Canada in 2014.  Rather, the more narrow interpretation which animates the decision in MDG is applicable.

In rejecting the argument that whenever summary judgment was available under the Queen’s Bench Rules, s. 7(2)(e) would be applicable, Justice Rempel commented on the appropriateness of the court making a policy decision on how a change to a statute should be interpreted. The court held that:

 “[93] implementing the interpretation of s.7(2) of the Act in the manner favoured by the Plaintiff would defeat the legislative policy that encourages arbitration and judicial economy.

As the principle of judicial economy was relevant to the bases for refusing a stay, the plaintiff’s argument also failed on this policy ground. 

Finally, Justice Rempel rejected the defendant employer’s alternative argument that a partial stay should be granted because there was an intertwining of arbitral and non-arbitral matters. A partial stay or bifurcation of the proceedings can only occur where both s. 7(5) (a) and 7(5)(b) are satisfied, namely that the agreement in issue deals with only some of the matters in dispute and that it is reasonable to separate the matters.  That test was not satisfied here; rather, Justice Rempel found (at para. 107) that a partial stay would result in, “duplication, additional expense and the potential for discordant findings”.

Contributor’s note:

In this case, the Manitoba Court of Queen’s Bench sends a strong message in support of arbitration in two key ways. First, it favours upholding arbitration clauses, even where the contract (here, the 2019 SIP Agreement) was not negotiated between the parties and thus, the “party autonomy” argument in favour of a stay was weakened. Where a plaintiff benefits from the contract, he or she will be held to its terms, including to an arbitration clause.

Second, that strong message of support continued in Justice Rempel’s review of the exceptions to the stay provisions, and particularly the narrow scope given for cases which are “proper ones” for summary judgment.  The notion that the availability or appropriateness of summary judgment should trump party autonomy is controversial.  Some see those provisions as allowing a court to deny what the parties initially chose as the means for dispute resolution (i.e., arbitration) based on the court’s assessment that a different route in court may be more appropriate. However, following similar jurisprudence in Ontario, the court in this decision made it clear that it would read that provision very narrowly and only exercise its discretion to refuse a stay in cases where the arbitration will be of limited to no utility.